08.04.04

Cantwell Pushes Federal Energy Regulatory Commission for Expedited Review of New Snohomish Filing

Cantwell calls for clarity from FERC Chairman that Enron termination fees of $800 million, including $122 million at Snohomish, are "unjust profits"

EVERETT, WA – U.S. Senator Maria Cantwell (D-WA) today urged Federal Energy Regulatory Commission Chairman Pat Wood to quickly act on the new filing by Snohomish PUD to secure relief from Enron's market manipulation. Cantwell joined Snohomish PUD and Attorney General Christine Gregoire in requesting a clarification from FERC that the commission's July 22 order on Enron's market manipulation means that more than $800 million in termination fees charged by Enron against utilities throughout the country, including $122 million against Snohomish, are "unjust profits" and that Enron is not entitled to collect them.

"Federal should make sure Snohomish ratepayers aren't forced to pay another dime on manipulated Enron contracts," Cantwell said. "The battle to protect ratepayers from Enron has been going on for far too long and ratepayers in the northwest have already paid far too much. Justice is long overdue."

On July 22, Cantwell held a meeting on Enron's market manipulation with FERC Chairman Wood on Capitol Hill with Senators Gordon Smith (R-OR) and John Ensign (R-NV).

At the meeting with Cantwell, Wood announced the order, which forms the basis of today's filing by Snohomish. FERC ordered a "comprehensive review of all evidence relevant to Enron conduct that violated or may have violated Commission tariffs or orders and the appropriate remedy for such violations" under which it said "Enron potentially could be required to disgorge profits for all of its wholesale power sales in the Western Interconnect for the period January 16, 1997 to June 25, 2003." FERC also ordered Enron to forfeit $32.5 million in unjust profits because it violated its market-based rate authority by its failure to disclose its control of El Paso Electric's assets.

"Now that FERC has defined a process to review Enron's unjust profits, we want to make sure Snohomish is not once again abandoned by federal regulators," Cantwell said. "In its order, FERC said the write thing. Today we are attempting to make sure FERC does the right thing. We're not going to let FERC play a cat and mouse game with words."

The text of Cantwell's letter to FERC Chairman Wood follows:

August 4, 2004

The Honorable Patrick Henry Wood III Chairman Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C. 20426

Dear Chairman Wood,

I write in support of a petition filed with the Federal Energy Regulatory Commission (FERC) today by the Snohomish Public Utility District (PUD) in my home state of Washington, along with Nevada utilities and other parties seeking to protect consumers from further harm at the hands of Enron. As we have discussed on many occasions—most recently, at a July 22, 2004, meeting convened by the Senate Subcommittee on Competition, Foreign Commerce and Infrastructure—ratepayers throughout the West continue to suffer the severe impacts of the electricity crisis of 2000-2001. Retail electricity rates in Washington state have risen by as much as 97 percent in some areas. According to one study, these unprecedented rate increases caused the loss of 589,000 jobs across the West and reduced regional economic output by $35 billion. Utilities and consumers throughout the West will face severe financial hardship for years to come if Enron is allowed to collect even more profits on contracts resulting from the company's market manipulation schemes.

At our July 22, 2004, meeting, I expressed to you concerns about the new order the Commission issued that day, consolidating a number of ongoing FERC proceedings and ordering the disgorgement of an initial $32.5 million in Enron profits (EL02-113-000, EL03-180-000 and EL03-154-000). While a step in the right direction, I noted that the order leaves unresolved a number of issues critical in determining whether the Commission will use the full extent of its legal authority to protect our nation's electricity consumers in proceedings involving Enron. I also noted that the order fails to clarify how the Commission will treat profits related Enron's long-term power sales contracts—particularly in situations where Enron has sued a number of utilities, seeking "termination payments" after these contracts were cancelled.

The motion filed today by Snohomish PUD and the Nevada parties asks the Commission to clear up some of the lingering uncertainties associated with FERC's July 22 order. These parties are simply asking FERC to clarify that it will consider these contracts--and fashion an appropriate remedy--within the context of the Commission's now greatly-expanded Enron proceeding. I believe this action is warranted on a number of grounds. First, while the Commission's July 22, 2004 order focuses almost exclusively on "disgorgement"—ordering Enron to return profits resulting from its illegal activities—this remedy might not be relevant to the situations in which a number of utilities find themselves. Namely, Enron is suing these entities for payment on power that Enron never delivered. As such, one of the most important issues facing these utilities is not just whether Enron owes them repayment for prior illegal activities, but whether they should have to pay Enron more in the future—a result that would turn on its head the notions of common-sense and fairness.

Second, this is a pocketbook issue with real-world ramifications for our nation's ratepayers. A review of filings within Enron's bankruptcy proceeding suggests that Enron itself has claimed that "the counter-parties to the various trading contracts [at issue] owe more than $6 Billion in accounts receivable and termination payments" (See, e.g., Enron Power Marketing v. Select Energy, Inc., Complaint for Declaratory Relief at 4 [Docket No. 1, Adversary Proceeding 02-03538-ajg, SDNY Bankruptcy Court]). While Enron has now reached confidential settlements with many of these counter-parties, close to a billion dollars remains at stake for consumers and businesses in at least ten states across the country.

It is thus clear to me that FERC's treatment of profits related to long-term power contracts—inflated as a result of Enron's schemes to gouge consumers and manipulate energy markets—is an issue that the Commission must resolve within its ongoing Enron-related proceeding (EL03-180). This is a crucial step and would provide a real, fair forum in which these arguments could finally be heard. Given that the "termination payments" Enron is seeking represent nothing but windfall profits, this should ultimately allow entities such as Snohomish and the Nevada parties to scrub from their books the hundreds of millions of dollars in liability associated with Enron's attempt to collect money for power it never delivered.

In view of the voluminous evidence we now have detailing Enron's fraudulent and manipulative schemes designed to drive up electricity prices in the West, I have stated on many occasions that consumers in my region should not be forced to pay a single penny more on these inflated contracts. In noting the confusion inherent in FERC's July 22 order, I asked you at our meeting that day what message the Commission hoped to send to the many Washingtonians who have lost their jobs or their homes, who must choose between keeping their lights on and buying prescription drugs, and the state and local officials who cannot keep pace with the requests for low-income home energy assistance since the Western energy crisis has wreaked havoc on our economy. You suggested that we must remain patient and reserve judgment, given that FERC had not yet wrapped up its proceedings related to Enron and the Western energy crisis.

Over the past three years, many consumers in the West have concluded that FERC has forgotten its statutory duty to protect them. Instead, many of my constituents have come to believe that your agency has gone out of its way to throw up repeated roadblocks to relief from unjust and unreasonable power prices, in an effort to sweep the Western energy crisis under the rug. The petition filed today by Snohomish PUD and the Nevada parties provides the Commission with a critical opportunity to reverse its course. Not only is the clarification these parties seek legally warranted, but you can send a signal that FERC is in fact coming to understands the situation many of my constituents face; that instead of playing procedural shell-games, the Commission will address these important issues in a straight-forward manner; and most importantly, that there may still be some justice for Western ratepayers.

As such, I ask that you grant on an expedited basis the petition filed today by Snohomish and the Nevada parties.

Thank you for your attention to this matter, which is of such extreme importance to my constituents.

Sincerely,

Maria Cantwell U.S. Senator

cc: Commissioner Nora Brownell Commissioner Joseph Kelliher Commissioner Suedeen Kelly

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